Financial Daily from THE HINDU group of publications
Monday, Oct 25, 2004
Info-Tech - Insight
Leading the pack
FOR all those who harbour any doubts about the power of the services sector in the global IT market, here is positive reaffirmation coming from the latest report titled Digital Planet 2004. This report asserts that among the four key technology segments communications, hardware, services and software spending on global computer services will grow at the fastest pace of 10.4 per cent on a compounded annual basis over the next four years till 2007. Services spending is projected to rise from $240 billion in 2004 to $320 billion in 2007, though its base is considerably smaller than the rest.
Services spending is defined typically as the total value of outsourced services and since India is at the forefront of this market, it is expected to capitalise a lion's share of this emerging opportunity.
Two trends in this report published this month by the World Information Technology And Services Alliance, a consortium of IT and communication industry associations from 60 economies around the world, stand out for attention:
While this is an encouraging factor, another challenge is looming in the horizon for Indian companies.
And this relates to say, the Philippines or Malaysia or Vietnam emerging as an outsourcing hub for servicing the Asian markets or Eastern European countries such as Hungary, Poland or Russia seriously looking at prospects of servicing the Western European markets and China becoming the centre for the Japanese markets.
The report rightly points out, "As India moves up the value chain and challenges the market leaders in the US and Europe, other countries are jumping into the fray in an attempt to wrest away those markets that India already controls."
Obviously, the top-tier Indian companies are rising to the challenge though in a small way, changing their India-centric nature of operations to a truly global one.
In the latest quarter, TCS stated that its Global Delivery Centre at Uruguay, Brazil, Hungary and China are servicing 35 customers, with each of them servicing at least five customers each.
It is also planning to double its workforce in China from about 180 employees at present.
Satyam, which already has a centre in China, is planning to open a development centre in Hungary and an office in Brazil by the end of the year. The journey of becoming `truly multicultural global outfits,' through organic or inorganic growth or a combination of the two, has begun for the Indian software industry.
No surprises here. Finance segment, (including banking and insurance) along with government, are the biggest spenders on IT, followed by manufacturing.
Unlike the finance segment where North America and Western Europe dominate in terms of spending, it is interesting to note that in manufacturing, spending by the Asia-Pacific region is higher than North America and Western Europe.
And over the next three years, this growth pattern shows that spending in finance and manufacturing will be over 7-8 per cent for these two segments.
For the top-tier vendors such as TCS, Infosys, Wipro or Satyam, the focus will be on widening and deepening their vertical expertise and strength in these two segments.
For medium-sized companies, the sub-verticalisation strategy will come into play where companies identify their niches within these verticals such as securities trading or treasury management and dominate within them. For these players, a combination of innovation and smartness will be necessary to survive and grow within their chosen niches.
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